Non-fungible tokens (NFTs) are digital assets representing things such as art, music, and in-game items. These have become popular collectors’ items, but there is growing concern about the environmental impact.
NFTs are a way for creators to sell assets in a digital format. Each NFT is an asset that is unique, hence the term non-fungible. For a brief period, NFTs were a big business, with the market exceeding $10 billion in sales in late 2021, as reported by CNBC.
NFTs aren't environmentally friendly. Most NFTs trade on the Ethereum network. This means that each transaction uses a mining process to confirm the trade and transaction. The energy used in mining concerns many who feel that it can add to carbon emissions if non-clean energy sources are used.
Here's how it works in a nutshell:
Most NFTs use Ethereum blockchain, which requires a proof-of-work system that confirms each new block.
Computer networks solve complex problems to get the right to confirm the block.
The entire network uses energy in hopes of receiving the gas fees generated in the confirmation of the block.
This system incentivizes miners to invest in more hardware that requires even more power from the grid.
Power sources that emit greenhouse gases negatively impact the environment.
Joanie Lemercier, a French artist, calculated that selling one NFT was the equivalent of powering her art studio for two years. It is estimated that the sale that took only 10 seconds consumed 8.7 megawatt-hours of energy.
Note: NFTs require energy to confirm each blockchain transaction. This means that it uses an equal amount of energy when resold, multiplying the effect of any one NFT on the market.
NFTs For A Sustainable Future
While there is cause for concern, the NFT industry is looking at ways to make NFT transactions more sustainable and environmentally friendly.
1. Using Green Energy Resources for Mining
The first method is to encourage more renewable energy sources in blockchain mining. Taking mining off of the traditional grid and using clean energy can reduce the impact of carbon-generated energy. Options include powering mining operations with solar or wind sources. This would remove the mining from the traditional electric grid leading to carbon emissions.
Note: Investing in green energy solutions can help the blockchain space as well as reduce the effects of carbon emissions by the traditional energy consumption of consumers. Experts are concerned with where growing resources should best be utilized and developed.
2. Moving to Proof-of-Stake Systems
While most NFTs are on the Ethereum network, those represented on Cardano and Solana operate on a proof-of-stake system. Ethereum is working on a proof-of-stake system called Ethereum 2.0, but its release date is unknown. A proof-of-stake system validates block transactions based on the number of coins the validator stakes, reducing the amount of problem-solving done in a proof-of-work system.
3. Batching Transactions
One thing that some NFT marketplaces are looking to do to reduce the energy consumption is to batch transactions. This can be done by adding a layer to the purchase process. Buyers would make transactions outside of the blockchain to then batch-process all transactions at once, reducing the energy consumption. Currently, the Bitcoin Lightning Network utilizes this type of two-layer approach.
Bottom Line
The role of NFTs going forward is uncertain but the environmental impact of NFTs, particularly the energy used in mining to confirm the blockchain transaction, should be addressed. Solutions do exist that include moving to new proof-of-stake systems and batching transactions to reduce energy consumption.
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Non-fungible tokens (NFTs) and ordinals are assets that are tokenized using a blockchain. Because blockchains use energy, NFTs can contribute to greenhouse gas emissions and climate change through their production, exchange, and storage.
UN Study Reveals the Hidden Environmental Impacts of Bitcoin: Carbon is Not the Only Harmful By-product. Global Bitcoin mining is highly dependent on fossil fuels, with worrying impacts on water and land in addition to a significant carbon footprint.
- Plagiarised NFTs: Plagiarism is a significant issue in the NFT space, where many tokens sold are unauthorised copies of others' work. It was reported that over 80% of NFTs created using OpenSea's minting tool were fake. The value of these plagiarised NFTs often plummets when their illegitimate nature is discovered.
Over its lifespan, it is estimated that an average NFT will produce 211kg of carbon dioxide (CO2) into the atmosphere as a result of the process of creating and purchasing the digital artwork. A single tree can offset 60kg of CO2 on average, therefore it will take 3.52 trees to offset the life of an NFT.
Despite the recent craze surrounding digital art, its negative impact on the environment must be taken into account. Every aspect of online activity consumes energy and digital art is no exception; the machines and servers that store blockchain hum away, consuming massive amounts of energy.
Non-fungible tokens (NFTs) and ordinals are assets that are tokenized using a blockchain. Because blockchains use energy, NFTs can contribute to greenhouse gas emissions and climate change through their production, exchange, and storage.
Per the CCRI, both Ethereum's electricity consumption and CO2 emissions have increased more than 300% since the start of the Merge. While Ethereum PoS uses significantly less electricity and emits significantly less greenhouse gasses than Ethereum PoW, the upward trend is undeniable.
Many critics see NFTs as hyper-capitalist schemes to enrich speculators by wasting energy on hypothetical value. This opposes the decentralization ethos of web3.
Beyond the legal conundrums, a profound ethical dilemma looms over the NFT space. Some artists and environmental advocates are deeply concerned about the considerable energy consumption associated with blockchain transactions, which could potentially contribute to increased carbon emissions.
These include rampant scams, exacerbating wealth inequality, a staggering environmental impact and, not least, the exploitation of the artists NFTs were supposed to enrich. It's ironic that NFTs were originally conceived of as an ethical correction to an art market that often failed to reward artists for their effort.
NFTs consume energy throughout their lifecycle, from the time they're created -- or minted -- through their subsequent sales and transactions and their perpetual storage online. All of that is energy-intensive. The most energy-intensive blockchains are those that use a consensus mechanism known as proof of work.
With around 190 million transactions annually, the network consumes 512,671 kWh of electricity every year. Consequently, it releases around 243.5 tonnes of carbon dioxide annually. Algorand powers Aorist, the sustainable NFT marketplace for climate-conscious artists and collectors.
Computational artist and engineer Memo Akten gave one estimation of the carbon costs of average NFT transactions using PoW. He found that to mint a single NFT cost roughly 142 kWh, an equivalent of 83 kgCO2. For a single transaction, like the eventual NFT sale, he calculated the energy cost of 87 kWh, or 51 kgCO2.
AI art appears to be a particular threat to digital artists. Part of this is because these creators tend to produce large bodies of content, meaning that datasets will have access to huge amounts of information on their style.
Whether they understand it or not, artists and their work are being harmed by the usage of this type of AI and if it continues will do harm to the art and the art world. Another danger of AI is the studio's usage of creating scripts via generative programs and implanting actors on the screen without their consent.
Technical difficulties. One downside with digital art is that you may face technical issues from time to time. Your computer may crash or your electricity might go out which would stop you from making art. Softwares you use to make art can also crash or not work properly when you need them to.
However, there are alternative, eco-friendly cryptocurrencies that inflict less damage on the planet. These could potentially allay concerns surrounding cryptocurrency and the environment. Smaller currencies may often appear to have a lower carbon footprint, but that may simply be because there are fewer transactions.
Speculation and Volatility: The speculative nature of cryptocurrency markets can lead to rapid price fluctuations. While this can create investment opportunities, it can also pose risks and affect market sentiment and stability. Regulatory Challenges: Cryptocurrency regulations vary by country.
Some of environmental impacts triggered by the cryptocurrency mining can be expressed as the high electricity consumption, the increased carbon footprint and the generation of the electronic waste.
However, the energy consumption of certain blockchain networks like Bitcoin, Litecoin, Monero, Zcash, and others has generated apprehensions regarding the sustainability of this technology. Bitcoin alone consumes approximately 100 terawatt-hours annually, contributing significantly to global carbon emissions.
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